Further BSP rate hikes remain on the table

Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said the central bank was prepared to raise interest rates “as much as necessary” to bring inflation back to its target, while acknowledging that the economy’s weakness would factor into its next policy decisions.

Speaking to reporters on Monday, Remolona noted that there had been some moderation in core inflation, a measure that strips out volatile items to provide a clearer picture of underlying price pressures.

But overall inflation remained above the BSP’s 3-percent target and would need to be closely monitored, he said.

At the same time, policymakers are mindful of the economy’s sluggish growth.

Remolona answered in the affirmative when asked if the weak second-quarter growth lessened the urgency for further rate increases when the Monetary Board meets on Aug. 27.

“Growth is implied by the inflation mandate—if you can maintain price stability, that tends to sustain growth,” he said.

“But in the short run, sometimes there are problems with growth. And then we take that into account. We don’t ignore that,” he added.

The central bank has raised its benchmark interest rate by a cumulative 50 basis points since April, bringing the key policy rate to 4.75 percent, as officials sought to keep inflation expectations anchored despite slowing economic growth.

Now, policymakers face a more difficult balancing act: an economy losing momentum while inflation remains above target.

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Gross domestic product, the value of all goods and services produced in the country, grew just 2.3 percent in the three months through June, according to data released last week. It was the weakest quarterly expansion in 16 years outside the pandemic, putting the Marcos administration’s 2026 growth target of 3.5 percent to 4.5 percent further out of reach.

Consumer prices, meanwhile, rose 6.2 percent in July from a year earlier, extending a three-month slowdown in inflation as transport costs eased. Core inflation also moderated, to 4.2 percent from 4.4 percent in June.

Economists have said the weaker second-quarter growth could prompt the central bank to slow the pace of rate increases, or pause them altogether, as policymakers may seek to avoid adding pressure to an economy already strained by high inflation and weak confidence.

For now, Remolona said “everything is on the table” at the Board’s next policy meeting.